BusinessMirror | September 30, 2019
The Department of Trade and Industry (DTI) is asking senators to give high export firms a maximum of 10 years to surrender their fiscal incentives to ease the impact of the second tax reform package on investment inflows and employment figures.
Trade Secretary Ramon M. Lopez admitted that a longer transition is needed to cushion the impact of the Corporate Income Tax and Incentives Rationalization Act bill on firms operating in economic zones. The Citira bill will reduce corporate income tax (CIT) rate to 20 percent by 2029, from 30 percent at present, at the expense of incentives granted to investors.
Under the measure, locators are provided up to five years to relinquish their tax perks, including the 5-percent tax on gross income paid in lieu of all local and national taxes, before they shift to paying CIT.
Lopez argued the transition period should be five years at the minimum and can go as long as 10 years for economic zone firms significantly contributing to export and employment numbers. He said this should also ensure they are to stay here in the Philippines in spite of the tax perks overhaul.
“[Transition should be] a minimum of five years or seven years [and] maximum of even 10 [years] because these are high exporting firms. They are really performing as locators, and some of them even employ 20,000 [workers] or more. The bottomline is the impact to jobs [of this measure],” Lopez said in a recent interview with reporters.
The trade chief added this should also buy the government some time to make the necessary reforms needed to attract investments, particularly the rollout of its infrastructure program. Once the transition has ended, investors are assured of cheaper logistics cost due in large part to better transportation and connectivity infrastructure brought about by the program.
“This should bode well for our ‘Build, Build, Build’ so that infrastructure projects can catch up, and that’s one reason we are seeking a longer transition,” Lopez said.
He is also asking senators to consider setting a threshold as to what project proposals should be reviewed by the investment promotion agencies (IPAs) only, and what should be assessed and approved by the Fiscal Incentives Regulatory Board. The FIRB, to be institutionalized under the Citira bill, is tasked to review and approve all projects seeking to obtain incentives from the government.
“On the structure, the big-ticket projects should be approved by the FIRB. However, those projects that fall below the threshold value should be approved by the responsible IPA. FIRB can serve as oversight and can do the reevaluation, and perhaps the vetoing, if it likes,” Lopez explained.
“However, it should be made clear that for high-value projects, the IPAs will only be recommendatory and the FIRB will approve. If the project is part of the government’s strategic investment priorities plan, then we already know where to place it,” he added.
Lopez said the threshold is still being determined by the Board of Investments, but noted he is looking at between $1 billion and $3 billion as the trigger mark.
With these proposed changes in hand, Lopez believes the Citira bill can be passed within the year. He said the Department of Finance’s openness to reforms in the transition and adjustment periods will be crucial in making the measure acceptable to industry groups.
Locators, mostly multinationals, strongly oppose the Citira bill, and said its passage will result in capital flight and, consequently, job losses.
Estimates by the American Chamber of Commerce of the Philippines put job losses at about 700,000 once the Citira bill is passed into law. Economic zone firms said they cannot afford to lose their tax perks, as this helps them manage operating costs here inflated mostly by power and logistics.
The measure is now being deliberated by senators after it hurdled the House of Representatives over two weeks ago.
Source: https://businessmirror.com.ph/2019/09/30/give-exporters-10-yrs-to-give-up-perks-dti/